The euro area may have entered recession in the final months of 2023, according to the latest economic data in the region. The euro area economy remained weak in December, with a composite economic index of 47.6 – and any figure below 50 indicates economic contraction.
The services sector index, at 48.8, was the highest in five months, but still remains in contractionary territory. Factory production data released on Tuesday were even more damning. In fact, output contracted for the 18th consecutive month in December, to 44.4, and in all likelihood, the economy contracted in the October-December period.
The currency union also contracted by 0.1 percent in the July-December period, and two quarters of a contraction means that the economy has entered recession. The euro area is in contraction, and demand is slowing, but output prices have been rising rapidly since June. This suggests that inflation will remain important for the European Central Bank, which in 2024 will have to decide between reducing inflation and stimulating growth.
M. Bo.
